A little sympathy for Mélanie Joly, please.
Imagine if your job was to save the purveyors of Canadian content from the ravishes of American cultural imperialists, cord-cutters, cord-shavers, cord-nevers, millennials in general, digerati, incumbent ISPs, Reed Hastings, VPN developers, Jeff Bezos, Chicken Little, Hulu, cloud computing vendors, Henny Penny and Reed Hastings. It’s harder than it looks.
Contrary to popular belief, Ms Joly is doing exactly what the Minister of Canadian Heritage should be doing these days: looking for money to put into the pockets of Canada’s network content providers so they can make bigger and better Webisodes for the digital age. Yet her ideas for accomplishing this daunting task have drawn vociferous criticism. Many criticisms have focused on issues outside the Minister’s mandate and are based on little appreciation of how things actually work in her department.
So let’s head on over to the sausage factory where the sausage mandarins have been cooking up our Cancon policy for the last half-century.
We’ll start with Minister Joly’s least popular trial balloon: slapping an “Internet tax” on everyone’s ISP bill. My friends at OpenMedia have been pointing out with alarm that such a tax would only serve to raise the price of Internet access, when Canadians already pay high prices for mediocre service (you can sign their petition here).
Could there be anything worse than this tax “on the Internet”? Yes! A tax on Netflix, an idea that just won’t die, thanks to Joly’s alleged plan to bring the streaming giant “into the system” – Ottawa code for we’re gonna tax the daylights outta Netflix.
Meanwhile, Michael Geist reminds us that Canadian TV and movies, not to mention the rest of our cultural life, are already subsidized to the tune of billions of dollars, so how much more do we really need? In another post, Geist argues that Joly’s policy agenda is on a collision course with that of Innovation, Science and Economic Development Minister Navdeep Bains. Bains wants us all to have better, cheaper Internet access, which doesn’t go well with slapping taxes on Internet access.
Sausage ingredient #1 (ministerial mandates). The first thing to know about this conflict is Ministers Bains and Joly are living out the consequences of a departmental reorg dating back to 1994. Until then, everything affecting both technology, like spectrum engineering, and arts and culture, like movies, was managed by the federal Dept of Communications. Then Prime Minister Kim Campbell decided it would be better if, as the wag said, the iron rings were segregated permanently from the earrings. Thus were born Industry Canada in one corner and Heritage Canada in another, setting the stage for the unproductive conflict the two ministers find themselves in today.
But back to Minister Joly and her critics.
Let’s consult the Minister’s job description as laid out in the PM’s Mandate Letter, the quasi-contractual communiqué sent to all the new Liberal ministers a year ago:
“As Minister of Canadian Heritage, your overarching goal will be to implement our government’s plan to strengthen our cultural and creative industries. … Canada’s stories, shaped by our immense diversity, deserve to be celebrated and shared with the world. Our plan will protect our important national institutions, safeguard our official languages, promote the industries that reflect our unique identity as Canadians, and provide jobs and economic opportunities in our cultural and creative sectors.”
Here we have one of the notable ironies of Canadian policy history. The Dept of Communications gets rent asunder, sending what some thought would be the industry stuff to, you know, Industry Canada, leaving culture to the Heritage crowd. Not a chance. They may call it “cultural policy,” but that’s just high-minded barbeque sauce the mandarins have slathered over what is in fact a full-blown industrial policy.
The tough thing about cultural policy in the electronic industries – led by that cornerstone of high-mindedness, the Boob Tube – is that the only meaningful way to promote and measure success is by doing what the PM urges in his punch line: “provide jobs and economic opportunities in our cultural and creative sectors.” I like fast, affordable Internet access as much as the next guy, but don’t kid yourself: Heritage Canada is not in the end-user welfare business.
Sausage ingredient #2 (meet the real constituents). Like any good politician, Minister Joly knows she has to pay attention to her constituents. Except in her case the constituents aren’t you and me in front of our screens. Nope, those would be the industry stakeholders waiting to see how healthy their subsidies are going to be in the next fiscal.
That’s no arbitrary choice. The Broadcasting Act comes down clearly on the side of the industry. It directs stakeholders to focus their efforts not on viewer welfare but on nebulous constructs like our national cultural sovereignty, whatever that is. It turns out this high-minded rhetoric is exactly what the media establishment has needed to cloak its self-serving business interests in flag-waving faux-patriotism.
A young Tim Berners-Lee: the 1991 Broadcasting Act predates the public Web
The timeline also says a great deal about the utility of this policy framework. The Broadcasting Act was given royal assent on February 1, 1991, six months before the very first Web page appeared on the public Internet (the working Internet dates to 1969, the World Wide Web to 1991). To say Canada’s policy goals for broadcasting are outdated in the age of on-demand, everything-over-IP is a considerable understatement.
Still, a good politician has to make some show of paying attention to the great unwashed public. Going the CRTC one better, Joly’s officials have cooked up not only a general public consultation on the digital age, but a “pre-consultation” as described in Canadian Content in a Digital World (pdf). Heritage says about the pre-consultation (p.6) that “10,000 individual Canadians and cultural stakeholders told us what is important to them and their views of the challenges ahead.”
As with any policy exercise relying on unrepresentative chit-chat, the results here are strictly window-dressing. The Department’s work is now based on three principles gleaned from this group: “Focusing on citizens and creators; Reflecting Canadian identities and promoting sound democracy; Catalyzing social and economic innovation.”
This kind of under-achieving pronouncement explains why public debate has focused on how Heritage will raise money, rather than on broader cultural discussion. What can you expect from a 15-page marketing document that has little to offer other than platitudes congratulating ourselves on how diverse and unique we are. Not diverse and unique enough to deserve affordable Internet access. But, man, have we got stories to tell.
Sausage ingredient #3 (disrupting the disruptors). If there’s one thing our policymakers and their industry clients can agree on, it’s that the disruptive influences of innovative technologies are a pain in the ass – especially the Internet, which has screwed up decades of careful work based on protectionism and public subsidies.
Keep in mind cable-TV was launched in Canada so we could watch the US networks, not to make reception better for domestic signals (as in the US). Whereas Ottawa did agree to let the American networks creep steadily north of the border, cable had long since become the “cultural instrument of choice” – TV’s gatekeeper. It was a marriage made in heaven. Ottawa dictated exactly what ran on the cable lineup, and in return the cable industry got lucrative monopolies protected from any competition, foreign or domestic.
By the early 1990s, however, the onslaught of superstations, pay-TV and other cable networks had put Canada and the US on the fast track to what cable king John Malone referred to as the “500-channel universe.”
You might think the feds would have been happy Canadians had all these TV choices, one of those consumer motherhood things. But you’d be wrong. Our policymakers, in solidarity with our conventional broadcasters, hated the new normal because the big ol’ pie they once had to themselves was getting chopped into ever-smaller fragments.
Too many TV choices, mostly American, meant it was increasingly difficult to get a primetime bang for public subsidies, and increasingly likely viewers would drift away from programming of “national interest.” As the name suggests, audience “fragmentation” was bad for the TV business and thus bad for Canadian cultural policy – yet another motive for Ottawa to see disruptive trends from the industry’s worried perspective.
For the defenders of state culture at Heritage, life was bad enough in the 500-channel universe. Imagine how they must feel today, drowning in the 200-million website universe. Is Minister Joly really going to promote more disruptive “innovation”? Unlikely.
Sausage ingredient #4 (the sky is falling). Like her predecessors, Minister Joly is going to be subjected to tremendous pressure from the two constituencies with something to lose under any arrangements that upset the applecart. The production and creative lobbies have money to lose. The conglomerates like Bell and Rogers, which now own most of our broadcasting system, have control to lose and maybe money as a consequence. Strange bedfellows that they are, these two groups have made vociferous common cause in defence of the status quo ante.
The interested parties have a well-worn habit of making disingenuous pronouncements as they struggle against any form of progress that might enhance consumer welfare at the expense of their business interests. Their rhetorical strategy boils down to one crude sentiment: if Ottawa lets American content circulate freely in our society, then great existential harm will befall the Canadian broadcasting system and Canadian culture.
Netflix is the stuff of nightmares for these guys. The recent call for “taxing” or “regulating” Netflix is based on one of two self-interested motives. For the production lobbies, Netflix is just another broadcaster, meaning it owes the creatives money, the price of doing business in Canada. For the conglomerates that distribute networked media, money isn’t the issue, at least not directly. Their issue is trying to live down decades of being coddled in a market protected from any real competition. They do not want competitors poaching their subscribers, driving down prices or providing friendly service.
In early 2011, when Netflix Canada was a few months old, the CRTC convened in camera meetings with executives from a dozen industry organizations to discuss the alarming threat posed by Netflix and other OTT or over-the-top video services (Internet-delivered video that circumvents conventional distribs like cable-TV). Video Armageddon was nigh.
One Shaw official warned “consumers will ultimately suffer, with fewer Canadian choices.“ The CMPA (Canadian Media Production Assoc) said all Netflix does is “take dollars out of the country.” OTT has “got people very frightened,” added no less a personage than the Chair of the CRTC himself, apparently not referring to me and the 800,000 other unfrightened Canadians who were paying subscribers to Netflix at the time. A few weeks later at TV licensing hearings, the Shaw team was back, agonizing that “the threat today from over-the-top television is alarming” – and if left unchecked, would have a “destabilizing impact on the Canadian broadcasting system.”
In a strikingly similar vein, the cable industry once warned Canadians of the imminent predations of the so-called Deathstars – like so many Darth Vaders, a new generation of high-powered American TV satellites capable of reaching across the border and drowning our citizens in alien signals. The appointed gatekeepers saw revenue disappearing if they lost control. The CRTC made sure that didn’t happen.
That variation on the Chicken Little strategy echoed yet another campaign, mounted previously against the impending assault of pay-TV networks like HBO. My comment at the time:
“[C]able industry representatives have been lobbying hard to get their hands on the new U.S. services, promising a better deal for Canada than if new services are allowed to run amok in a free TV marketplace. Wouldn’t you know: we heard it all two decades ago when the country was agonizing over what to do about pay-TV. The pay-TV lobby painted a stark dilemma: either get completely swamped by American pay, with no countervailing benefits; or else give us what we want and the quid pro quo will be work for the Canadian production community.”
Did I mention I wrote that paragraph in 1991? (Split Screen, chap 6).
Sausage ingredient #5 (cue the 800-lb gorillas). For Minister Joly, the official task is to ensure money is found to keep subsidizing Canadian content. She may do so by convincing the PM that it should be funded from general tax revenues. Or she may get the go-ahead to tax our ISP bills and/or Netflix after all. Or take a piece of the spectrum licensing proceeds. To the interested parties, none of these details matters as long as the coffers get filled.
What does matter is the same thing that has mattered since the 1970s: getting Cancon to the end-user. History shows that even at the best of times the distribution piece is a never-ending uphill battle. Then along comes the Internet and blows up the business model (reselling hit US shows); the funding model (taxing cable-TV); and the protectionist model (keeping out what can’t be regulated).
But there’s a market development that has really upended the old policy goals: the rampant pace of concentration of ownership and vertical integration in our broadcasting, telecom and Internet sectors.
Vertical Integration and the Network Media Ecology, 2015 – Media and Internet Concentration in Canada:1984 – 2015, CMCRP, Nov 2016, Fig.3
Take a look at the pie chart above. It shows that over half (55.7%) of Canada’s entire communications industry is owned by our four vertically integrated conglomerates (VICs): Bell, Rogers, Shaw and Quebecor (Telus is not considered vertically integrated because it does not have content holdings). The extent of concentration of ownership in broadcasting alone is even higher.
A combination of these industry trends and rules put in place by the CRTC has had highly undesirable consequences. First, the four dominant firms operate under serious conflicts of interest that come with owning distribution networks in addition to content assets.
This integration provides both motive and opportunity for firms to engage in anti-competitive and anti-consumer behaviors, such as using data caps to discourage broadband customers from choosing video products from competing sources. Moreover, as cable-TV sheds customers from cord-cutting, the integrated firms will be even more incented to protect their online digital services, as well as to recapture revenue lost from cable-TV by raising retail fees for broadband.
Here’s the problem for Minister Joly. The less affordable the large ISPs make Internet access, the less likely it is Canadian end-users will venture online to “discover” Canadian content. Meanwhile, the regulated TV distribution system is losing subscribers. One factor exacerbating that trend is undoubtedly the high cost of watching TV. As the chart indicates, the combined cost of Pay-TV and “cable-TV” service (from broadcasting distribution undertakings or BDUs) has been rising since 2002 at a rate that greatly exceeds the increase in the CPI.
The high cost of watching TV – Growth of the Network Media Economy in Canada, 1984-2015, CMRCP, Oct 2016
Indeed, the CRTC’s attempt this year to establish a low-cost tier for cable-TV was implemented by the large BDUs in ways expressly designed to make the effective monthly costs much higher than the intended $25. The CRTC was not amused. On November 21, it issued Broadcasting Decision CRTC 2016-458, intended to restore both the spirit and the letter of the Commission’s attempt to make TV services more affordable and accountable. The decision also shortened the BDU licence renewals from seven years to one. In an announcement today, Chairman Blais offered the following warning:
“Next year, when those licences are up for renewal, we will not hesitate to take action if any provider doesn’t conform to the established policy or respect Canadian consumers and their right to choice.”
Let’s hope this regulatory initiative succeeds. Yet even if it does, it’s difficult to see how Minister Joly can depend on the four dominant firms to make dependable let alone enthusiastic policy partners. No matter much money Joly finds to subsidize production, her agenda will get little help from Rogers or Bell if they keep raising prices for TV and broadband. We’ve come full circle back to the old problem of how to cajole our broadcasters and cablecasters into respecting the nation’s cultural goals – except now the problem is much worse.
Sausage ingredient #6 (gatekeeping the producers). But don’t take my word for it. Let’s hear what my friend Barri Cohen says about the prospects. Barri qualifies as an expert witness, having spent many years producing TV shows and documentaries of all kinds. She also happens to be a policy wonk who knows how things work in Ottawa.
Barri is not a happy camper these days. The system, she says, is badly broken, thanks in large part to concentration of ownership. Leaving aside the CBC, the only broadcaster doors left to knock on are Corus/Shaw, Bell and Rogers. The obvious effect is opportunities for independent producers have been shrinking. The less obvious effect is the gradual disappeance of diversity in social perspectives and industry voices.
There’s more. As Barri points out, the gatekeeping power enjoyed by the three largest firms has allowed them to implement purchase conditions highly unfavorable to producers, with help from the regulator. In a decision released in March 2015 (Broadcasting Regulatory Policy CRTC 2015-86), the CRTC did away with the terms of trade requirements that gave independents more negotiating power with licensed broadcasters. The best way to promote Canadian programming, says the decision, is to remove the producers’ automatic right to retain ownership of their intellectual property in licensing deals.
Thus, Barri explains, the creator of a show selling to Bell becomes a mere “producer of record,” with no opportunity to earn ongoing revenue from further licensing deals. She is not sanguine about the prospects for international sales, especially with Netflix and many of the largest social media platforms moving aggressively into the video space.
The consequences do not bode well for Minister Joly’s digital quest. Depriving independents of their own IP means it will become even more difficult to find opportunities online – exactly where the Minister thinks everyone should be headed. These barriers also undermine Canadian complaints about Netflix and its refusal to support indigenous production. Is approaching Netflix to get project underwriting any worse than approaching Bell?
There’s one other factor at play here that shows just how broken the Cancon system has become. The large firms all operate TV services – BDUs – and pay a levy of 5% of revenues to Ottawa, part of which goes to support the Canada Media Fund. When CMF funds find their way into a Canadian production, the creators can take their show to a Canadian broadcaster and offer a subsidized price, i.e. one that falls below market value. Thus, when Bell the broadcaster – say, CTV – agrees to license said show, Bell the BDU is indirectly getting some of its levy back from the Canada Media Fund.
So Bell gets a subsidy. It gets the producer’s IP. And it gets the opportunity to make all the downstream revenue, including from online versions, on the backs of both the production community and Canadian consumers. It’s hardly surprising the VICs are reluctant to see the end of this madcap scheme.
If the Minister’s new scheme builds on the status quo, I don’t see how it can possibly succeed – even in its industrial goals, i.e. making the production sector a source of job creation and contributions to the larger economy. Is this broken superstructure fixable? Maybe. But any sustainable fix means the Liberals will have to carry out several radical initiatives they’re unlikely to have the stomach for:
- The money. Roll back earmarked levies of any kind, along with special funds like the CMF, and pay for Cancon in the digital era from general tax revenues. If this stuff is as important as people say, then let them put their money where their mouth is.
- The ministers. Put Heritage in charge of parks and monuments, and move all the pieces concerned with the cultural industries over to Industry where they belong. Then Minister Bains can skip the platitudes about cultural sovereignty and concentrate on what really matters: job creation and export marketing programs.
- The statute. Rescind our absurdly out-of-date Broadcasting Act and write new provisions that sound like it’s the 21st century. This would include doing away with the legal fiction of “technological neutrality” – i.e. broadcasting is still broadcasting no matter how it’s delivered. The TCP/IP platform that runs the global public Internet ain’t just another technology and online, on-demand streaming video services ain’t broadcasting.
- The end-user. Introduce, as a matter of federal policy, not regulatory policy, a network neutrality framework that replaces what we have now, the 2009 ITMP framework – a poor compromise that began life as a way to help hapless Ma Bell cope with trumped up network congestion, instead of as a way to protect every Canadian consumer’s right of unfettered access to the public Internet.